Five Ways for Stock Investors to Profit from the Greek Debt Crisis
Stock-Markets / Investing 2015 Jul 19, 2015 - 07:07 PM GMTBy: ...
MoneyMorning.com
Michael A. Robinson writes: Today I'm setting you up with five ways to profit from the Greek Debt Crisis and any other sell-offs that come along.
The market swoons and soars we've seen over the past couple of weeks are part of a long-term trend.
Just in the last week, we saw enormous battles between the bulls and the bears as a bevy of market "pundits" tried to factor in what the dramas in Greece and China will mean for the markets.
So today, I'm going to lay out five fundamental portfolio-management tools that you can use to make money no matter what happens in the market – to make what I like to call "volatility profits."
The first one puts you in charge.
Volatility Profit Tool No. 1: Buy Test Shares
This strategy puts two powerful tools to work in one simple move. When markets are choppy, rather than making your normal entry in a position, you start with just a few "test shares."
By doing so, you greatly reduce your risk and can determine if the timing is right for the play. After all, getting the timing right is hard in volatile markets.
We're making sure we're set for any sudden rallies and at the same time reducing our risk of losses.
Here's how buying test shares works. Let's say your standard market order for a stock is $2,500. Instead, you would cut that to as little as $500. That way if either the stock or the market retreats quickly, your portfolio won't suffer much damage.
But at the same time, if the stock starts to move quickly, you can always add to your position over time.
Volatility Profit Tool No. 2: Use Stop Losses
There are two ways to employ these essential portfolio tools. The first is a stop loss that protects against losses getting too deep on a new entry. I suggest a stop loss of no more than 20%.
This is a classic tool designed to avoid suffering any catastrophic losses. I always set my stops on what's known as a "good until canceled" basis, which means having a 60-day stop in place.
The second method is a "trailing stop" used to protect gains. This is one that moves up as the price of the stock advances. Use the same 20% figure in this manner.
Let's say you bought a stock at $15 that's gone up by 66% to $25. A 20% trailing stop gets you out at $20. That way you make profits of 33% no matter what happens.
Now onto the Cowboy Split…
Volatility Profit Tool No. 3: The Cowboy Split
I'm surprised more professional investors don't know about this powerful moneymaking tool. It's one I've been using regularly in this choppy news-driven market.
The Cowboy Split is a staggered entry system. With it, you enter a position at market and then put in a "lowball limit" order to buy more shares if a discount comes your way.
In general, I use a 15% to 20% discount from my entry price as a second entry point. Here's how it works.
Suppose we decide to acquire shares of XYZ Tech Corp. at $50 and put in a lowball limit order at 20%. In this case, should the market trigger the Cowboy Split, we would automatically buy a second position at $40 a share, for an average price of $45.
For this example, let's assume the stock then rallies all the way to $60. We would then have 16.6% appreciation on our original shares. But it's that second tranche that really juices our profits.
See, that second half has gains that are double the first buy order. That way we end up with overall gains of 25%, or roughly 50% more than had we just bought at market.
Volatility Profit Tool No. 4: Play "Moneyball"
The market is filled with momentum traders. These are aggressive types who pile into stocks that are on the move.
While that can add to our short-term gains, it greatly increases the odds that we'll see a big mover reverse quickly on profit taking.
That's why what I call playing Moneyball is so effective. I named it after the book and movie "Moneyball," about how Silicon Valley's baseball team, the Oakland A's, won 20 straight games in 2002 on a shoestring budget.
The A's weren't aiming for home runs. Their idea was to get as many runners on base as possible, meaning they looked for singles and doubles.
Rather than looking to double your money, when you play Moneyball, you take some gains off the table when a stock advances, say, 25% – still a market-crushing return.
Remember, the faster a stock moves, the more you'll want to protect some of those "windfall gains" before it has a chance to reverse when momentum traders take their profits.
Volatility Profit Tool No. 5: The Autopilot System
Whenever possible, we want to set ourselves up so that we exit a position with specific gains no matter what happens.
That's where what I call the Autopilot System comes in handy. It's a unique way of protecting profits with a combination of taking gains and using trailing stops.
It works like this. Let's say you sold half of XYZ Tech when it was up 30%. Now you can afford to see if the stock still has more upside while at the same time protecting your profits against any reversal.
In this case, you could set your stop at your original entry point and walk away with combined gains of 15%. You always have the option to set the trailing stop above your entry price to lock in more money.
The beauty of the Autopilot System is that you set up your minimum profit figure in advance. After that, there's no need to worry about what happens because the autopilot is protecting your portfolio.
Thus, by using these "Volatility Profit" tools, you can continue to invest in winning tech stocks knowing that you're prepared for anything the market throws your way.
If you employ the tips I've shared with you today, you'll get through any challenging markets not just with your portfolio intact, but with extra money in the bank as well.
Editor's Note: As an investor, I'm betting you read everything you can about the financial markets. If so, you've probably seen all sorts of stories about how technology – and especially biotechnology – is "overvalued."
That's hooey.
If anything, biotech is cheap – so cheap, in fact, that I'm trying to find the next big opportunities … the best new "over-the-horizon" technologies that can deliver the Holy Grail 10-bagger-like gains.
I've found one. And it's big.
For the past year I've been investigating a new technology that's based on a Nobel Prize-winning discovery.
Within 2 years, this technology could critically impact the lives of more than 16 million Americans.
But few Americans (and even fewer investors) know that it even exists.
Here's the best part, though. It could generate $29.8 billion a year in new revenue for one small company that's dominating the market.
We want to get you there, first.
Click here to continue reading…
Source :http://moneymorning.com/2015/07/16/five-ways-to-profit-from-the-greek-debt-crisis/
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